What constitutes parallel imports or grey goods?
A parallel import (also referred to as "grey goods") is a genuine product which is imported from another country without the consent of the Intellectual Property right owner. The parallel import is then sold in the country (for example in South Africa) at a lower price and without the usual guarantee and/or after sales service that usually comes with it. A parallel importer is someone who purchases the genuine products in another country and imports these products into South Africa for resale. The reason for this is generally that the goods are considerably cheaper in the foreign country and the profit margin would be greater if the products are sold in South Africa otherwise than through the authorized or approved distributors.
A foreign company usually appoints an authorised importer/distributor to sell and market its products in South Africa. The authorised distributor is then liable for sales of the product and after-sales services such as providing guarantees and warranties in respect of the product.
One of the downfalls of parallel importation is that the foreign proprietor/manufacturer does not have proper control over what the parallel importer does with the brand and the product so the question then arises, is parallel importation lawful in South Africa?
In terms of section 34 (2) (d) of the Trade Marks Act, parallel importation is lawful. This section provides that a registered trade mark is not infringed by "the importation into or the distribution, sale or offering for sale in the Republic, of goods to which the trade mark has been applied by or with the consent of the proprietor thereof."
Although parallel importation is permitted, section 25 (2) of the Consumer Protection Act provides that "a person who markets any goods that bear a trade mark, but have been imported without the approval or licence of the registered owner of that trade mark, must apply a conspicuous notice to those goods in the prescribed manner and form". The basis of this section is to make the consumer of such goods aware that the goods are not covered by any guarantee of the authorised distributor of the goods thus allowing the consumer to make a well-informed choice. According to this section of the Consumer Protection Act, the notice must be applied on the goods, in a visible place on the product where the consumer is likely to see such notice and in a legible size. The vendor must also, draw specific attention to such notice, in plain language and explain the meaning of the notice to the consumer.
In terms of regulation 8 (2) (c), if the grey goods bear a trade mark, such notice must clearly state that the goods have been imported without the approval of the registered owner of the trade mark. In terms of this regulation, the notice must also state that NO GUARANTEE OR WARRANTY WILL BE HONOURED by any authorised importer of such goods. This regulation provides protection to the consumer and allows the consumer to make a well- informed choice, as the consumer is then aware that they are paying a reduced price for the product because no after sales guarantees or warrantees are provided. However, in my opinion, the disadvantages of purchasing grey goods may often outweigh the associated cost savings.
The question then arises, when does parallel importation constitute trade mark infringement?
According to the Protective Mining case, use on genuine goods does not constitute trade mark infringement. However, in terms of the Television Radio Centre (Pty) Ltd v Sony Kabushiki Kaisha case, it was held that where a person (the importer) alters the goods, they are to the extent to which they have been altered, no longer the genuine goods to which the trade mark was affixed by the registered proprietor. In order to determine this issue, one would have regard to:
- The nature of the goods; and
- The nature, purpose and extent of the alterations.
In terms of the Sony case, the appellant had imported into South Africa video cassette recorders which had been made for use in the United Kingdom. The appellant had modified these recorders in order for them to be able to receive the local version of the PAL signals in South Africa as the PAL television system is a slightly different version to that used in other countries also using the PAL version. The court found that the appellant's conduct constituted trade mark infringement as the converted video cassette recorders were different from those originally imported.
In the Jazz Cellular case, the court held that where goods have been altered to such an extent that they can no longer be said to be the genuine or original goods, this can constitute trade mark infringement and therefore by extension, can constitute counterfeit goods, as contemplated in the Counterfeit Goods Act.
It therefore appears that parallel imports that have been altered (to the extent to which they have been altered) could constitute trade mark infringement and by extension also constitute a counterfeit product.
- Webster and Page – Fourth Edition – Service Issue 16 November 2012, chapters 12 and 18;
- Case – Jazz Cellular CC v Nokia Corporation and others TPD 22 September 2006 case 2926/06 (Unreported);
- Television Radio Centre (Pty) Ltd v Sony Kabushki Kaisha t/a Sony Corporation 1987 2 SA 994 (A) (the "SONY" case);
- Protective Mining and Industrial Equipment Systems (Pty) Ltd. formerly Hampo Systems v Audiolens (Cape)(Pty) Ltd. (282/85)  ZASCA 33;  2 All SA 173 (A) (30 March 1987)
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.